Asian travel hotspots may be counting on an ever-growing horde of Chinese tourists for growth, but China's move last week to weaken the yuan may choke off the flow of travelers.
"China's high growth in outbound travel was partially due to a strong renminbi and lower tax in overseas countries," Deutsche Bank (XETRA:DBK-DE) warned in a note last week.
"Although travel agencies may bear the higher costs in the short term, we think persistent renminbi devaluation would lead to more expensive outbound packages, which would in turn slow down the explosive growth in outbound travel."
In a move that rattled global markets, the People's Bank of China (PBOC) allowed the yuan - the units of the currency known as the renminbi (Exchange:CNY=) - to weaken a total of around 3 percent against the U.S. dollar on Tuesday, Wednesday and Thursday amid a shift toward a "managed float" regime. The PBOC set Friday's fixing at a slightly stronger level, which may signal the string of aggressively weaker fixings is finished for now.
But that yuan move may be enough to snuff out Chinese wanderlust, or at least prompt tourists to rein in their overseas shopping jaunts around Asia.
The sheer number of Chinese travelers, as well as the growth in numbers, involved is huge. In the first half of this year, China had around 61.9 million outbound tourists, according to the independent research agency China Outbound Tourism Research Institute, up 12.1 percent from the same period in 2014. Last year, CLSA forecast that the number of mainlanders traveling abroad was expected to hit a whopping 200 million per year by 2020.
"If Chinese outbound tourism growth slows, it could deliver a major hit to the Hong Kong, Korea, Taiwan, and Thailand tourism sectors since Chinese tourists account for 20-80 percent of arrivals in these economies," Credit Suisse (Swiss Exchange: CSGN-CH) said in a note last week.
The risk is especially high in Thailand, where tourism is expected to drive around two-thirds of gross domestic product (GDP) growth this year?, the Credit Suisse said, citing data showing around 20 percent of the country's tourists are from China.
Hong Kong may take an even bigger hit as Chinese tourists account for nearly 80 percent of the city's tourist arrivals, according to data from Credit Suisse.
"A weaker renminbi would narrow the 'discount' Chinese tourists get when purchasing merchandise in Hong Kong," one of the city's key attractions for mainland travelers, Christiaan Tuntono, an analyst at Credit Suisse, said in a separate note last week. "In addition, easier visa approval for competing destinations such as Korea, Japan, Europe and the sharp depreciation of their currencies are also detrimental to Hong Kong's appeal on a comparative basis."
Hong Kong's currency is pegged to the U.S. dollar, meaning it has gotten stronger even as other regional currencies have weakened.
China's gambling mecca Macau may also feel the burn from a weaker yuan, as its casinos take a double hit from the foreign-exchange losses and a decline in tourist numbers.
"Since casinos settle in Hong Kong dollars (Exchange:HKD=), the yuan devaluation increases the yuan-denominated repayment cost for Mainland-based VIP customers," Daiwa, the Japanese investment bank, said, in a note. "Not only does the yuan weakness shrink Hong Kong dollar-denominated gaming budgets [of tourists], it threatens to eat into the appetite for gaming," it said, adding the yuan move also created a "haircut" in gambling debts owed to junket operators, which arrange trips and credit with casinos for tourists.
"It is not inconceivable that yuan weakness alone will have a 20 percent downward impact on VIP gross gaming revenue," Daiwa (Tokyo Stock Exchange: 8601.T-JP) said.
Among mass-market gamers, yuan weakness alone could push mass-market gross gaming revenue down by 8-10 percent in 2016, Daiwa said in a separate note last week. Mainland China business accounts for more than 90 percent of Macau's gross gaming revenue, Daiwa said.
Last week, Melco-Crown (:6883-HK)'s Philippine unit suspended 100 workers, or around 2 percent of its workforce, due in part to fewer Chinese tourists, Reuters reported. Australia's Crown (ASX:CWN-AU) reported last week that its fiscal-year earnings from Macau, which are about 40 percent of revenue, shrank nearly 45 percent.
It's not just Macau. Casinos in Singapore may also take a hit because the weaker yuan has weighed heavily on other regional currencies.
"The depreciation of Asean (Association of Southeast Asian Nations) currencies may affect visitation from Malaysians and Indonesians who are the key source of mass and premium mass players" at Genting Singapore, which operates one of the city-state's two casinos, CIMB (Kuala Lumpur Stock Exchange: CIMB-MY) said in a note last week.
Last week, Genting Singapore (Singapore Exchange: GENS-SG) reported its second-quarter core net profit fell 6 percent on-year, below some analysts' estimates. UOB KayHian (Singapore Exchange: UOKH-SG) noted that the results were also hit by a foreign-exchange loss as the Singapore dollar (Exchange:SGD=) losing ground against the Hong Kong dollar, which is kept as working capital to settle with winning VIP gamers.
But it's not all bad news for Chinese wanderlust.
"If the renminbi continues to depreciate, Chinese people may replace part of their outbound travel with domestic travel," Deutsche Bank said. "In addition, we believe the number of in-bound travelers will increase," the bank said, noting inbound traffic currently accounts for only around 3 percent of travelers in China.
